Mideast Stocks Fall as Saudi Arabia Mulls Budget Cut on Oil Drop

APTOPIX Mideast Saudi Markets Opening

APTOPIX Mideast Saudi Markets Opening

  • Kingdom's benchmark gauge is biggest decliner in region
  • Brent crude has dropped almost 60 percent in 12 months

Most Middle Eastern stock markets declined amid mounting concern the region’s largest economy will cut spending after oil prices slumped to the lowest since 2009.

The Tadawul All Share Index in Saudi Arabia, OPEC’s biggest oil exporter, retreated 2.1 percent, dragging its decline this month to the fifth-worst among major global indexes. Al Rajhi Bank, which has the highest weighting on the gauge, led the drop with a 5.4 percent loss. Dubai’s DFM General Index retreated 1.4 percent after gaining the most since December on Tuesday.

The Saudi government is working with advisers to reduce investments, two people familiar with the matter said yesterday, as the drop in oil prices over the last year has put a strain on the nation’s finances. Crude sales generate about 90 percent of the government’s revenue, which is then pumped back into its economy and serves as the main driver of company growth.

“The market is in a downtrend anyway because of already existing fears of a contractionary fiscal policy, and the news on the budget cuts from yesterday reaffirms that the outlook is still cloudy," said Riyadh-based Mohammed Al-Suwayed, the head of capital and money markets at Adeem Capital. “We still don’t know what the fiscal policy for next year is going to be as the new king hasn’t revealed his fiscal plans yet and might not do so till the end of the year.”

Scud Missile

Yemen’s Houthi rebels fired a Scud missile into the southern Jazan province of Saudi Arabia on Wednesday, as the Shiite fighters try to reverse the momentum in the five-month conflict. The rocket was intercepted and destroyed and no damage was caused, according the official Saudi Press Agency.

“Sentiment generally is still weak in the market and investors don’t want to hold positions for long," Ramez Merhi, a Dubai-based director at Al Masah Capital Ltd., which manages $500 million, said by e-mail. “The missile news was an added pressure."

One-year currency forward options for the riyal rose as much as 66 basis points, as traders increased bets that it will weaken. The Saudi central bank pledged this week to keep the riyal’s peg at 3.75 riyals per dollar, quieting speculation that the country would devalue the currency.

Oil Slump

Brent crude has fallen 58 percent in the past 12 months to $43.37 per barrel at 2:23 p.m. in London, near the six-year low. The six-nations of the Gulf Cooperation Council are home to about 30 percent of the world’s proven reserves and rely on income from oil to fund government spending.

Kuwait’s stock gauge fell 0.4 percent while Abu Dhabi’s ADX General Index retreated 0.1 percent and Bahrain’s BB All Share Index lost less than 0.1 percent. Oman’s MSM30 Index rose 0.4 percent and Qatar’s QE Index added 0.5 percent.

“We’re in sell-first-ask-later season," said Ibrahim Masood, a money manager who helps oversee about $400 million at Aventicum Capital Management Qatar. “So cuts to the Saudi budget are as good a bet as any in this environment" to explain the drop, he said.

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